The possibility that verbal hostilities between the United States and North Korea could trigger geopolitical conflict had investors on the run last week. In the United States, the Standard & Poor’s 500 Index fell by 1.4 percent, the Dow Jones Industrial Average lost 1.1 percent, and the NASDAQ Composite finished 1.5 percent lower.

Financial Times explained:

“The sell-off came as U.S. President Donald Trump escalated the war of words against the North Korean regime’s accelerated [program] of nuclear testing. Mr. Trump tweeted on Friday, “military solutions are now fully in place, locked and loaded, should North Korea act unwisely.”

While major U.S. indices headed south, the CBOE Volatility Index (VIX) – also known as Wall Street’s fear gauge – headed north. The VIX, which has been flirting with historic lows for much of the year, rose 44 percent in a single day, reported CNBC.

Stock markets in Europe and Asia were also affected by the saber rattling. National indices across Europe suffered weekly losses of 2.2 percent (Sweden) to 3.5 percent (Spain), according to Barron’s. In the Asia-Pacific region, India’s Sensex 30 lost 3.4 percent and South Korea’s Kospi was down 3.2 percent for the week.

Geopolitical concerns overshadowed some important economic news in the United States. Inflation, as measured by the U.S. Consumer Price Index, rose very little in July. In fact, consumer prices have been soft for five straight months, reported MarketWatch. Persistently low inflation could affect the Federal Reserve’s plan to raise interest rates this year. The Fed’s goal is 2 percent inflation.

(S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.)

ARE ELECTRIC ENGINES THE TORTOISE COMPETING WITH THE COMBUSTION ENGINE’S HARE? In the late 1800s, the Paris-Rouen race for horseless carriages included 102 vehicles fueled by steam, petrol, electricity, compressed air, and hydraulics, reports The Economist. Not a single electric engine made it to the starting blocks. (The internal combustion engine won.)

Oh, how times have changed!

The International Energy Agency’s Global EV Outlook 2017 reported:

“New registrations of electric cars hit a new record in 2016, with over 750 thousand sales worldwide. With a 29 percent market share, Norway has incontestably achieved the most successful deployment of electric cars in terms of market share, globally. It is followed by the Netherlands, with a 6.4 percent electric car market share, and Sweden with 3.4 percent. The People’s Republic of China (hereafter, “China”), France, and the United Kingdom all have electric car market shares close to 1.5 percent. In 2016, China was by far the largest electric car market, accounting for more than 40 percent of the electric cars sold in the world and more than double the amount sold in the United States.”

Financial Times reported the UBS analysis suggests the market may be at an inflection point as the total cost of ownership for electric vehicles may become comparable to that of combustion engine vehicles as early as 2018 in Europe, 2023 in China, and 2025 in the United States.

Even though their popularity is growing, electric cars comprise a small portion of the market today. UBS expects electric cars to account for 14 percent of the global market, and more than one-third of the European auto market, by 2025.

Weekly Focus – Think About It

“Though most of them sit idle, America’s car and [truck] engines can produce ten times as much energy as its power stations. The internal combustion engine is the mightiest motor in history.”

–The Economist, August 12, 2017

Best regards,

Rik Saylor

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Advisory services provided by Rik Saylor Financial, a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), Member FINRA/SIPC, and a SEC Registered Investment Adviser. Rik Saylor Financial and NPC are independent and unrelated companies. Please consult with your representative to confirm on which company’s behalf services are being provided.

Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans, or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The opinions expressed are for general information only. They are not intended to provide specific advice and do not constitute an endorsement by NPC.

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Since the start of the bull market in 2009, U.S. companies have been buying their own stock.

Stock buybacks peaked during the first three quarters of 2016 and have dropped off sharply since then, reports Financial Times citing a report from Goldman Sachs.

Companies participate in stock buyback (a.k.a. share repurchase) programs to improve shareholder value. For example, if company management believes a company’s shares are undervalued, it can buy shares on the stock market or offer shareholders a fixed price to purchase their shares. This reduces the number of shares in the marketplace and increases earnings per share, which has the potential to boost the company’s stock price.

“The slowing pace of companies buying back their own shares has certainly not halted Wall Street’s stellar run so far this year. While there is a reduced tail wind of buybacks helping boost earnings per share via a lower share count, U.S. companies have reported robust year-on-year sales and earnings growth for the recent quarter. That has helped offset the decline in buyback activity, but some warn that the clock is ticking for Wall Street bulls.”

There was no sign of a slowdown in the bull market last week, though. The Department of Labor reported the United States added more new jobs than anyone had expected during July, and the unemployment rate fell to 4.3 percent – the same level as May 2017, which was the lowest in 16 years, according to Barron’s.

Jobs growth was music to many investors’ ears.

Financial Times reported, “U.S. equity indices hovered near record highs – with the Dow Jones Industrial Average touching an all-time peak of 22,089.05 in early trade – with financials bolstered by the rise in yields. European [markets] ended the week on a strong note, helped by a sharp retreat for the euro against the dollar.”

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

SAVING IS AS EASY AS RIDING A BIKE! If you would like to save more money – for retirement, college tuition, healthcare costs, or some other financial priority – hop on your bike and ride.

As it turns out, riding your bike may help boost your savings. Whether you commute to work on two wheels or cycle around town doing errands, opting for manpower instead of horsepower can help generate some additional savings, according to a source cited by Bankrate.com:

“The average American household spends over $9,000 a year on transportation, making it the second-largest expense after housing…Many families simply take for granted the two-car, driving-to-work arrangement that’s the norm for American households and often don’t consider alternatives like public transportation, carpooling, or biking…That’s a shame, because its status as a major household cost means cutting transportation can radically cut your overall costs and, potentially, increase your ability to save…”

If you are serious about saving, imagine what your finances would look like if you:

Drove less. AAA reported owning a small car costs about $6,600 a year, while rumbling around in an SUV costs more than $10,000 annually. (The estimate includes fuel, insurance, depreciation, maintenance, fees and licensing, finance charges, and tires.) Eliminating a car could significantly improve your ability to save. Cycled more. Not everyone can get by without a car; however, if you bike shorter distances or when the weather is good, then you could qualify for a low mileage discount on your auto insurance. Didn’t go to the gym. If you’re riding a bike to work or to run errands, then you probably don’t need spin class. The average gym membership runs $54 a month or almost $650 a year. Bought less stuff. Impulse purchases are less tempting when you’re cycling because bike baskets and saddlebags have limited storage space. Who knows how much that could help you save?

In addition to saving money, two-wheeled travel options are likely to improve your fitness and reduce the stress of rush hour driving. Cycling may even eliminate the need for dieting and some medications. Here’s an added bonus: If biking improves your longevity, you may have more time to spend the money you save!

Weekly Focus – Think About It

“Life is like a 10-speed bicycle. Most of us have gears we never use.”

–Charles M. Schultz, Cartoonist

Best regards,

Rik Saylor

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Advisory services provided by Rik Saylor Financial, a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), Member FINRA/SIPC, and a SEC Registered Investment Adviser. Rik Saylor Financial and NPC are independent and unrelated companies. Please consult with your representative to confirm on which company’s behalf services are being provided.

Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans, or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The opinions expressed are for general information only. They are not intended to provide specific advice and do not constitute an endorsement by NPC.

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Specifically, the current lack of any major macro risks is enabling momentum alone to push stocks to historically extended valuations, and the market’s resilience is feeding on itself despite the wide and growing gap between fundamentals and stock prices. (GDP sub 2% and P/E ratios at 18x’s earnings)
In many ways, this has resulted in a return to what we call the “musical chairs” of the market (think late 2014/early 2015). The musical chairs reference means that despite deteriorating fundamental backing, we must remain long the market as long as the music (i.e. momentum) is playing… but with a constant eye on the player (macro horizon/sentiment indicators) to tell us when to find a chair.

Bottom line, the trend in markets appears higher in the short term, and to over think it and sell preemptively may be foolish. So, in that context, focus on both fundamentals and momentum indicators that tell us when the “music” is likely to stop (like it did in Aug/Sept ’15)—and that is what we are purposely doing going forward.

Rik Saylor

*Source* Google Finance, Bloomberg, February 28, 2017

Advisory services provided by Rik Saylor Financial, a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), Member FINRA/SIPC, and a SEC Registered Investment Adviser. Rik Saylor Financial and NPC are independent and unrelated companies. Please consult with your representative to confirm on which company’s behalf services are being provided.The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions. Past performance does not guarantee future results. Government bonds and treasury bills are guaranteed by the U.S Government and if held to maturity, all bonds offer both a fixed rate of return and fixed principal value. Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. S&P 500is an unmanaged index of 500 widely held stocks. This material contains forward-looking statements, including but not limited to predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because by their nature, they are subject to known and unknown risks and uncertainties.# 119893

On May 5, 1868, General John A. Logan, leader of an organization for Northern Civil War veterans, called for a nationwide day of remembrance later that month. “The 30th of May, 1868, is designated for the purpose of strewing with flowers, or otherwise decorating the graves of comrades who died in defense of their country during the late rebellion, and whose bodies now lie in almost every city, village and hamlet churchyard in the land,” he proclaimed.
The date of Decoration Day, as he called it, was chosen because it wasn’t the anniversary of any particular battle.

On the first Decoration Day, General James Garfield made a speech at Arlington National Cemetery, and 5,000 participants decorated the graves of the 20,000 Union and Confederate soldiers buried there. Many Northern states held similar commemorative events and reprised the tradition in subsequent years; by 1890 each one had made Decoration Day an official state holiday. Southern states, on the other hand, continued to honor their dead on separate days until after World War I.

History of Memorial Day

Memorial Day, as Decoration Day gradually came to be known, originally honored only those lost while fighting in the Civil War. But during World War I the United States found itself embroiled in another major conflict, and the holiday evolved to commemorate American military personnel who died in all wars.

For decades, Memorial Day continued to be observed on May 30, the date Logan had selected for the first Decoration Day. But in 1968 Congress passed the Uniform Monday Holiday Act, which established Memorial Day as the last Monday in May in order to create a three-day weekend for federal employees; the change went into effect in 1971. The same law also declared Memorial Day a federal holiday.
Memorial Day 2017 occurs on May 29; Memorial Day 2018 falls on May 28.

Memorial Day Traditions

Cities and towns across the United States host Memorial Day parades each year, often incorporating military personnel and members of veterans’ organizations. Some of the largest parades take place in Chicago, New York and Washington, D.C.

Americans also observe Memorial Day by visiting cemeteries and memorials. On a less somber note, many people take weekend trips or throw parties and barbecues on the holiday, perhaps because it unofficially marks the beginning of summer

To all of our veterans, thank you for your service. Reflect on our freedoms this Memorial Day holiday and find a veteran to thank in your own way.

Political drama that erupted last week with Trump’s firing of FBI Director Comey will make the path for corporate tax cuts and/or a foreign profit tax holiday less likely, as Republican support behind the President maybe fraying at the margin. This week there was some question of whether or not Trump inappropriately disclosed sensitive information to the Russians regarding Isis , although this appears to be fine.

Second, the data Friday was not especially good, and the CPI and retail sales reports were not the kind of reports that make us think we are going to see a reflationary economic acceleration power stocks higher from here.

Meanwhile, retailer earnings this week were simply horrid, and well below already-low negative expectations.
Again, for context, all that matters, because with S&P 500 valuations at 18X 2018 earnings (PE-price/earnings ratio)it’s going to take a positive catalyst to push stocks higher. That catalyst must come from:
1) Washington (via corporate tax cuts), 2) The economy (via higher inflation and better data) or 3) Earnings (which will lower the multiple on the market let the S&P 500 push higher). So, last week the chances of any of the three were marginally reduced, and markets reflected that reality.

Economic data last week was mixed in total, but from a market standpoint the takeaway was that it was neither strong enough to support a push through 2400 in the S&P 500(near term resistance) , nor weak enough to generate any real selling. So, the net effect is that the market is left wondering whether the economic acceleration can continue, or whether we are losing momentum.

It’s a given that inflation pressures continue to build, but all the statistical data implies they are building very s-l-o-w-ly. And given the Fed watches the statistical data, nothing in the inflation numbers appear the Fed would be thinking about hiking more aggressively or delaying the June rate hike. Stay tuned…
Rik Saylor

Bloomberg, Google finance
Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies.
The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions. Past performance does not guarantee future results.
Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is no guarantee of future results. This material contains forward-looking statements including, but not limited to, predictions of indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. NPC ID #119284

Looking at the positives, each of the three “gaps” between market expectations and fundamental reality—gaps which have kept the S&P 500 stuck for two-plus months, narrowed last week. (Political dysfunction, Soft/hard data and market trading levels vs the GDP -18x~ earnings vs 2%~)

First, the House of Representatives passed their Obamacare replacement, and while it still has virtually no chance of passing the Senate, it is a moral victory for the pro-growth agenda.

Second, economic data last week bounced back a bit, especially the ISM Non-Manufacturing PMI and jobs report. So, the gap between strong sentiment surveys and hard economic data did close slightly last week, although clearly, work remains to be done there.

Finally, the 10-year Treasury yield rose into the mid-2.30% range, a multi-week high. And while it didn’t break resistance at 2.40%, there was still progress in closing the large gap between near-record stock prices and bond yields at multi-month lows (which should not be happening in reflation). Given those modest positives, stocks were expected to have rallied and they did.

However, while we had improvement in the closing of those three gaps, very quietly a new risk has potentially emerged. Last week, Chinese economic data universally missed expectations; base metals’ prices (copper, iron ore, steel) all collapsed ; oil broke down badly and hit multi-month lows, and the commodity currencies (Aussie and loonie) both hit lows for the year.

All of those markets are anecdotal proxies for global economic growth, and they have served as important canaries in the coal mine for global growth scares that have caused sharp, surprising pull-backs in stocks (Sept. 2015, Jan. 2016).

We continue to keep an eye on the proposed corporate tax rate cut as this may be the key to higher high’s in stocks and about 1% more GDP output. This is expected to drop the P/E ratios into the 16x’s earnings range which is much more in line with the historical average and a value we like.

Rik Saylor

Bloomberg, Markewtwatch
dvisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions. Past performance does not guarantee future results. NPC ID: 118997

Last week was the peak of earnings season (it was actually the busiest week of results in 10 years) and earnings more than anything else dominated sector trading.

Economic data over the past several weeks hasn’t been “bad” and it’s not likely anyone is worried about a recession. But, the pace of gains has clearly slowed, and until we see a resumption of the economic acceleration many analysts were expecting at the start of 2017, any material stock rally from here will not be economically or fundamentally supported (and remember, it was the turn in economic data back in August/September that ignited the late 2016 rally. Yes, the election helped, but the momentum was positive before that event, so economics do matter).

Earnings season has been a good one with earnings and revenues coming in strong in aggregate, but the 2018 S&P 500 EPS remains $135ish and that means that at 2400, the S&P 500 is trading at 17.77X earnings. That’s a valuation ceiling in this environment.

Meanwhile, while sentiment remains skeptical and anxiety towards missing a rally overshadowing, the fundamental reality is there remain three large “gaps” that must be resolved positively before stocks can march higher.

First, and most important, is the gap between the S&P 500 (just off all time highs) and 10 year Treasury yields (they just hit 5 month lows). Yield rose last week but until they get through 2.40%, the near term trend in yields remains downward, and that should not be happening in a stock positive, economic reflation.

Second, the gap between soft sentiment surveys (which hit multi-year highs in Q1) and actual, hard economic data has widened in the past few weeks. Friday’s Q1 GDP came in at a paltry 0.7%, and that soft number can’t be blamed on a bad winter this year. This week, economic data needs to begin to beat expectations to help settle growing concerns about the viability of the Q3/Q4 ‘16 economic acceleration.

Third, the gap between the markets political expectations and likely political reality remains wide. At this point, tax cuts in 2017 seems a remote possibility at best, yet markets are still expecting (and potentially pricing in) pro-growth policy help for the economy/markets.

So, bottom line is that sentiment and momentum are higher, but we need to see positive fundamental progress for the S&P 500 to break up much higher.

Rik Saylor

Sources: Bloomberg, Google finance
&P 500 is an unmanaged index of 500 widely held stocks. Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is not guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Past performance does not guarantee future results. Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities offered through National Planning Corporation (NPC), Member FINRA/SIPC. Rik Saylor Financial and NPC are separate and unrelated companies. NPC ID 118694

European indices and ETFs exploded to new 52-week highs yesterday following the expected French election results. The likely removal of that French political risk overhang reinforces our bullish thesis on Europe, especially given some wobbling in US economic data recently.

Bullish Factor #1: Compelling Relative Valuation. The S&P 500 is trading at the top end of historical valuations: 18.25X 2017 EPS, and 17.75X 2018 EPS. There’s not much room for those multiples to go higher, and if we get policy disappointment or the economic data loses momentum, markets could hit a nasty air pocket.

Conversely, the MSCI Europe Index is trading at 15.1X 2017 earnings, and 13.8X 2018 earnings. That’s a 17% and 22% discount to the US. So, while it’s true Europe should trade at a lower multiple vs. the US given the still-slow growth and political issues, those discounts are pretty compelling. In a world where most equity indices and sectors are fully valued, Europe appears to offer value.

Bullish Factor #2: Ongoing Central Bank Support. This one also is pretty simple… the ECB is still doing QE. The ECB is still planning to buy 60 billion euros worth of bonds through December of this year. That will most likely support the economy, help earnings and push inflation higher, all of which may be positive for stocks.

Bullish Factor #3: Overblown political risk. We’ve been talking about this for a while, but the fact is that political risks in Europe are likely overblown, and just like people underappreciated risks in 2016, we believe they are now overreacting to Brexit and Trump by extrapolating those results too far.

Good allocation in portfolios should focus on 1- value (don’t overpay for holdings) 2- RISK 3- Reward. Make sure your overall holdings are balanced to your risk tolerance because investors react to emotion more than logic.

Rik Saylor

Bloomberg, Google finance, The Sevens Report, March 21, 2017
Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Past performance does not guarantee future results. NPC ID#118609

The financial media is consumed at the moment with geopolitical drama, but that’s not what’s driving stocks.

The reason stocks have stalled since March and traded heavy last week is the continued decline in the 10-year bond yield, combined with a darkening outlook for tax cuts (which is the lynch pin of the pro-growth policy out-look) and rising anxiety regarding momentum in the economy. President Trump’s “dovish” comments on the dollar (he said it was too strong), Yellen (he said she may be reappointed) and interest rates (he said he favored a low rate approach). His comments likely further eroded the expectation for the reflation trade, and weighed on bond yields and the dollar and that pressured stocks.

All those factors have gotten worse over the past few days (especially following Friday’s economic data-CPI and Retail Sales, further eroded the reflation trade thesis and will increase worries the economy is losing momentum.) and that’s likely why stocks fell. The 10-year yield is hitting multi-month lows, and that simply should not be happening right now if an economic reflation is occurring.

Meanwhile, the outlook for tax cuts now has gone dark. President Trump said last week an Obamacare repeal and replace must come first, but there’s still no healthcare plan in place that can pass the Senate even if a plan does pass the House (unless it’s radically different from the previous plan, it likely has no chance in the Senate).

Finally, economic data over the past two weeks hasn’t been better than expected, and on Friday data turned outright disappointing.

A three-pronged headwind is pressuring stocks, and right now about the only near term positive catalyst is earnings. The likely reason stocks aren’t falling more right now is because market consensus S&P 500 earnings for 2018 is $134/$135 per share without help from Washington. That puts the S&P 500 at 17.5X 2018, a very high but not outright absurd multiple with rates still so low. That earnings estimate is what’s holding stocks up right now as economic data begins to disappoint.

Two things have to happen to support stocks and keep any pullback manageable.

Bottom line, this week now is very important, as it will go a long way to resolving the now-glaring discrepancy between still sluggish “hard” economic data and surging “soft” economic sentiment surveys

All opinions reflect those of the author Bloomberg, Econoday and Google Finance and not of NPC. Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies. Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans, or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The opinions expressed are for general information only. They are not intended to provide specific advice and do not constitute an endorsement by NPC. S&P 500 is an unmanaged index of 500 widely held stocks. Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is not guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. NPC ID # 118218

Signs of a slight loss of economic momentum continued last week, and while on an absolute level growth remains “fine,” stocks need consistently better data to off-set lack of action in Washington, and that’s simply not happening right now. As a result, stocks are “stuck” at the current levels and downside pressures are building.

There remains tremendous noise in markets right now (political, economic, geopolitical), but cutting through all of it, the fact is that the headwinds on stocks are building.

First, corporate tax reform is going nowhere, and many people are starting to wonder whether it can get done in 2017. Now, because markets ultimately expect it will get done, this isn’t a bearish game changer yet. But, the simple fact is that the outlook for corporate tax cuts continues to hit new lows for 2017. If the market sees that the tax deal changes from the 35% to 20% reduction we could see the Trump rally gains (around 10%) drop.

Second, economic data has shown signs of a loss of momentum (last week’s bad auto sales were easily the most important economic report, not the jobs report-March auto sales, dropped to 16.6M (seasonally adjusted annual rate, or saar) vs. (E) 17.4M saar). It cannot be understated how critical better economic data has been to supporting the post-election rally in stocks, and while economic data on an absolute basis remains good, it has not gotten incrementally better of late. Remember, the #1/#2 economic drivers of the American economy are the “building/buying” of houses/automobiles.

Third, the reflation trade is breaking down. All the assets that led stocks higher not just since the election, but throughout Q4, are all of a sudden trading poorly, e.g. banks, small caps, cyclical sectors. Moreover, cross assets are no longer confirming the “reflation trade,” as bond yields are near lows for the year and the dollar remains below resistance at 102.

Fourth, geopolitical risk is rising. Syria and North Korea are the two current places to watch, and while neither situation is especially dangerous (yet), the fact is at these valuations (18X current 2017 earnings, 17.5X 2018 earnings) there is no elevated geopolitical risk priced into stocks, so even a small further escalation could weigh on markets modestly.

Finally, for the first time in years the Fed represents a hawkish risk by either

From a risk/reward standpoint, risks are growing. Absent a strong earnings quarter, corporate tax cuts or an acceleration of economic data, the rewards are starting to thin out.

Rik Saylor
*Source : Bloomberg, Google finance

Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial, Bloomberg and NPC are separate and unrelated companies. The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. NPC does not provide tax or legal advice NPC ID# 117938

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